What is Third Party Funding?
Third Party Funding, as the name suggests means that a third party who is not involved in the particular case, provides funds to a party to arbitration in exchange of an agreed return. The funding amount includes both legal fees and all the expenses included through the arbitration proceedings.
Advantages of Third Party Funding:
- Arbitration proceedings can sometimes be expensive. If any one of the parties do not have enough resources to afford arbitration, third party funding might be viable option.
- Arbitration proceedings are associated with risks. Sometimes the parties may not be able to take the risk. Through third party funding, the parties are relieved of the cost pressure associated with the arbitration proceedings.
- In third party funding, the funder only takes up the cases that assures merit and they do the necessary research before funding. This acts as a validation to the party and might also lead to an early settlement (as the case is backed up by a funder).
Disadvantages of Third Party Funding:
- Even though the funder does not have the right to take over the arbitration or control the proceedings, the party might lose autonomy as the funder may reverse the right approval of the settlement.
- One of the main advantages of arbitration is ‘confidentiality’. Through third party funding the facts and the details of the case is let out.
Third Party Funding in Indian Scenario:
The concept of third party funding is recognized under the Civil Code of Procedure in few of the states (such as Maharashtra, Gujarat, Madhya Pradesh and Uttar Pradesh). But there is not particular law governing third part funding in arbitration in India. The Arbitration and Conciliation Act, 1996 does not talk about third party funding. The presence of a third party funding clauses in specific states amend the Civil Procedure Code cannot adduce the legality of a similar clause in arbitration. Therefore, the validity of a third part funding agreement would depend on the Indian Contracts Act, 1872.